Harvard Business Online

How Corporate Responsibility Can Survive the Recession


Posted on Marketing Know-How: September 22, 2009 8:31 AM

Corporations engaged in recession-driven cost-cutting are trimming or eliminating corporate responsibility initiatives. Though corporate survival is key and consumer skepticism of business CR initiatives at an all-time high, such actions are short-sighted. Now more than ever, businesses need to be saying "yes" rather than "no" to their social responsibilities.There are five key reasons:

1. Critical cross-border global issues require multinational corporations and their CEOs to lead in the search for solutions, recession or not.

2. Recession results in more poverty and exacerbates problems that national governments and NGOs alone cannot solve.

3. The global economic crisis has increased distrust of business. Corporations with a strong commitment to CR are better able to withstand the downdraft and put the brakes on increased regulation.

4. Employees are attracted to and motivated to stay with socially responsible companies, and want to see commitment to CR initiatives continue through tough times.

5. An increasing proportion of consumers are willing to pay price premiums for products and services marketed by companies with proven and sustained track records of doing good.

Despite these arguments, the pressure for CR cost cuts in the face of recession is often inescapable. But the companies most vulnerable to cuts are those that have not embraced and embedded CR in their corporate DNA. There are four progressive levels of CR commitment:

First, there are companies that see CR only in terms of corporate philanthropy. They find it relatively easy to cut their annual donations.

Second, there are companies that have integrated support for a social cause into their marketing programs. They are less likely to let go, as their brand equities have become entwined with particular causes. For example, the American Express Red card donates a percentage of the value of card member purchases to the fight against AIDS.

A third level of engagement finds CR considerations embedded in a company's daily operations. Qualifying suppliers, for example, might be required to comply with environmental and labor practice standards. Starbucks has long purchased more fair trade coffee than any other company in the world, while Wal-Mart has moved rapidly in recent years to catch up in its operational commitment to CR.

Fourth and finally, there are companies that have internalized CR values into their corporate cultures, mission statements and daily decision-making. The Johnson & Johnson credo puts the interests of customers, employees and community ahead of those of shareholders. In the words of former CEO James Burke, doing so "insures that the interests of all stakeholders are maximized."

The further along this CR continuum a company is, the less likely it is to trim its CR commitment in the face of an economic downturn. In fact, some companies are finding that pursuing environmental CR initiatives during this recession is helping them to cut costs and increase their CR budget without changing prices. Cadbury, for example, has lowered its energy input costs and invested the savings in a commitment to buying only fair trade cocoa.

A growing segment of consumers worldwide considers CR evaluations important in selecting among brands across a wide range of categories. In previous recessions, this segment typically shrank rapidly in size as price considerations became paramount. But, thanks to heightened public awareness of issues like global warming, CR concerns are now more deeply and broadly embedded in the consumer psyche. CR is increasingly a mainstream consumer concern, no longer the province of a wealthy niche.

Regardless of recession, some cutting-edge companies are capitalizing on the growing consumer interest in CR to both do good and differentiate themselves at the same time. The UK-based global retailer, Tesco PLC, has taken the lead in promoting its Sustainable Consumption Initiative, now being copied by Wal-Mart. Tesco plans to require carbon footprint information to be placed on the label of every product sold in its stores. Terry Leahy, Tesco's CEO, wants to make it easy for consumers to incorporate environmental impact criteria in their purchasing. As he says: "To achieve a mass movement in green consumption is to empower everyone, not just the enlightened or the affluent." Corporations cannot change the world on their own. They need to empower their customers to help change the world for themselves.

CEO leadership, such as Terry Leahy is providing, is essential for corporate CR commitments not merely to survive but to advance during the economic downturn. As David Gergen has stated: "More CEOs need to sign up as reformers."

This post is adapted from John A. Quelch and Katherine E. Jocz, "Can Corporate Social Responsibility Survive Recession?" Leader to Leader, Summer 2009, pp. 37-43.

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